If you follow the news you would be led to believe that everything that occurs is a self contained individual event. This is of course not true. Upcoming decisions which will seriously affect the economy which are linked are the new tax bill working its way to the surface and the next chair of the Federal Reserve. This needs to viewed as a single event.

Given recent legislative performance it is probably safe to assume that whatever tax bill is passed by Congress will be a mess. Just some of the preliminary ideas that have leaked make no sense  (decreasing retirement saving incentives) and judging by the Health Care debacle it seems like Congress has lost the ability to do any substantive work on legislation. Health care failed because no one put forth a carefully crafted workable attempt to address the issues involved. The whole process deteriorated into big-guy talk and posturing without any serious attempt to get to the underlying problem. This does not bode well for tax "reform" which is much harder. Consequently the next chair of the Federal Reserve should be closely watched because they will need to craft monetary policy to offset what I imagine will be a hodgepodge of bad ideas on tax policy. Twice in my career (which started in 1972) I have seen the damage the Fed can do under poor leadership, once in the 1970's under Arthur Burns and again in the 2000's under Greenspan. Hopefully the new Fed chair will be a serious person, if not be afraid, be very afraid.   

With the constant demand for content to fill the 24 hour news cycle, I wonder if anyone bothers to think about what they have written before they air it. Case in point: on either MSNBC or Bloomberg the other day, amid the wringing of hands about the decline of retail store sales among the big chains during the Christmas season, the crawling headline read "Amazon bucks the trend" I guess they were trying to indicate Amazon had a better season than guys like Macy's. Don't they get it yet, Amazon is the trend!

The headline of the article in the weekend WSJ read "Wells Revamps Pay After Scandal". In my naivete I thought "good" some of the board members and executives are finally going to held accountable for the fraud, misstated public reports, breach of fiduciary duty and probably a few thousand violations of the banking laws. What planet do I live on? The new pay scale was for low level employees at the branches. Why are the directors still in place, doesn't there have to be some accountability at the board level? What about the concept of "known or should have known".  This is reminiscent of the mortgage crisis in 2008, where the only guy personally charged with any wrong doing was a mortgage-backed salesman for Goldman Sachs who worked in Paris. Are you kidding me?

Great article on the CBS web site concerning a study of the housing bubble and subsequent melt down in 2008 here.

Bait and switch is one of the oldest games in existence. Keep this in mind when you start hearing about regulatory relief in the financial industry during the coming months. Everyone engaged in any business that is regulated by a State or a Federal Agency will agree that there are a lot of nit-picking rules that are counter productive, rules that were promulgated in earlier times that are no longer applicable to today's world and should be discarded. These facts give air cover to Wall Street. Whenever Congress opens the dance to give regulatory relief to the banks they completely ignore the outdated and burdensome regs and at the bidding of the industry focus on planting the seed of the next big meltdown. History has given us two glaring examples of how this works.

The Garn-St. Germain Depository Institutions Act of 1982 allow the Saving and Loan Industry to make speculative investments with CD money, and led to the S & L failure and bailout in 1989 which cost the taxpayers 124 billion (low estimate). The original impetus for this was Ronald Reagan's efforts to ease regulation on private enterprise. The act passed Congress with widespread bipartisan support. This was the blueprint for bigger things to come.

In 1999 Congress passed the Gramm-Leach-Bliley Act also known as the Financial Services Modernization Act of 1999 to repeal Glass Stegall. Eight days later Bill Clinton signed it into law. With the lines between investment banks and Commercial banks erased Wall Street convinced regulators that they should be allowed to increase their leverage from 16:1 to 33:1 which led to the speculative frenzy that ended in the 2008 financial meltdown.

Please don't ignore the man behind the curtain. When Congress announces they are going to "fix" the Dodd-Frank bill, passed in response to the last crises, be afraid, be very afraid. .

Sometimes when I read the papers there is a disconnect between the reported stories and what seems to me to be obvious. Recently there is a lot of ink spilled about OPEC reaching an agreement about cutting production to raise the price. Every major oil producer is strapped for cash and the chance of these countries reaching a agreement to cut their cash flow voluntarily is non existent. The US-Iran deal allows Iran to sell their oil on the world markets putting pressure on Russia and Saudi Arabia who are  pumping oil with both hands because they need the money. If I was betting on a sustainable oil price increase I would be very nervous.

The Financial Times has an article this morning about the Italian banking system. Ever since the financial crisis in 2008 the worry about the banking system in Italy has been bubbling below the surface. I don't believe anyone has done anything about it and it seems ready to finally surface depending on the referendum next week. Throw an Italian banking crisis on top of Brexit and it might be time to turn on the fasten seat belt sign and strap in for a bumpy ride.

Why bank stocks in the US markets are up big since the election is a mystery to me. Traditionally a Republican administration is favorable to the industry, but the incoming President ran anything but a traditional campaign. There was a large component of populism in his victory and this will create a conflict between the financial industry and the voters who supported his election. Some direction about dealing with this dilemma will be indicated by whoever is appointed Secretary of the Treasury. Stay tuned.

Random thoughts coming into spring 2016

The world is awash with oil and will remain so for the foreseeable future. Major producers like Saudi Arabia and Russia will keep pumping as much as possible for one very simple reason, They need the money. Putin is trying to distract the Russian consumer from the disastrous domestic economy with his military based foreign policy, but invading countries is expensive. The Saudi's have been living fat dumb and happy on oil but now they are caught with no plan B for their economy. Look for the oil rally to fade soon.

Bob Dudley the CEO of BP received a raise last year from 16 million to 19 million. According to Bloomberg News "The bumper payout came despite an annual loss of $5.2 billion, a collapse in the group's share price, and plans to shed 7,000 jobs by the end of 2017." Since making 16 million per year should see you through the winter, an additional 3 million can't matter all that much. Isn't there one person at the company or on the board who might have suggested to Bob maybe a raise is a bad look this year since business sucks? If this CEO accepts a raise of this magnitude during a time the company is struggling, is he the kind of leader that puts himself or the company first?

Goldman Sachs is now offering saving accounts on line to individuals for as little as $1.00. What is wrong with this picture? Goldman who became a bank during the financial crises of 2008 is now trying to get funding directly from small investors. A year ago I doubt Goldman even knew there were people in the world with less than a million in ready cash is now reaching out for the "little guy". Do you think this is to help the "little guy" or Goldman? Let the buyer (depositor) beware!

Just in case anyone thinks Wall Street has any self perception, I was reading the Wall Street Journal this weekend during the NYC blizzard and came across an interesting article. The article stated that head of Goldman Sachs Lloyd Blankfein and head of Morgan Stanley James Gorman had taken a pay cut this year. It seems that poor Lloyd and James will have to struggle through the winter with only 23 and 21.5 million respectively, which was one million less than last year. In what parallel universe can this be described as a pay cut? Are we supposed to think that these men are being punished by their companies? "Yes that will teach them" "If you don't get better next year you will only get 20 million"

Additional random snow bound thoughts:

With the drop in commodities world wide it will be extremely hard for the Fed to raise interest rates according to the schedule everyone expected this year.

The rating agencies (Moody's and S&P) still don't get it. Case in point, Moody's finally figured out that oil was dropping like a rock so just last week they announced they were going to review oil credits. Where have they been for the last year?

The media / press is lazy. In today's world of the 24 hour news cycle there is more filler and idiotic opinion than any semblance of diligent fact based reporting. The current topic in the financial sector is when / whether the Federal Reserve will or won't raise interest rates. What is missing in all this chatter is the fact that anything the Fed does in the next four months is meaningless. If the Fed decides to raise rates...So What? It will have no effect on the economic activity of this country or any other. There will be some speculation in the currency markets but it will be over quickly. Nothing the Fed is contemplating will have any effect in the real world. At best whatever the Fed does is window dressing but if you listen to the talking heads on TV you would think that the fate of the world was being decided on September 17, 2015

The main reason the Fed would raise interest rates is to choke off the economy and kill inflation. Commodity prices are falling because China has finally owned up to being just one big Government spending binge. The world is running out of storage for all the oil sloshing around the globe. Combined with the  stock market performance last week, which was a huge deflationary event, there is no economic reason for the Fed to do anything. With the rest of the world slowing down economically the US economy looks OK. If there were any real journalists in the financial news business they would be out talking to business owners, contractors, bank lending officers, local merchants etc. and actually try to ascertain what the US economy is doing. Don't hold your breath